Real Clear Markets
January 28, 2014
A growing chorus of senior European policymakers, including ECB President Mario Draghi and European Commission President Jose Barroso, keep reassuring us that the worst phase of the Euro crisis is over. They also keep telling us that there is now no risk of any country leaving the Euro. Evidently they are not paying much attention to the recent worsening in political and economic developments in Greece. For those developments are now very much heightening the risk that we will again be talking about Greece leaving the Euro before the year is out.
Among the more disturbing developments is the country's apparent loss of political willingness to comply with the terms of its IMF-EU financial support program after four painful years of budget austerity. Negotiations with the IMF and EU on that program's review, which should have been completed last September, show no signs of being concluded anytime soon. This could cause real difficulties for Greece by May 2014 when large loan repayments to the European Central bank come due.
Holding up the IMF-EU negotiations is the Greek government's insistence that, with unemployment having risen to over 28 percent and with the Greek economy having shrunk by a quarter since the onset of the crisis, it simply does not have the political support to take the further budget measure or to implement the additional economic structural reforms being demanded of it. And with the country now enjoying a small budget surplus, excluding interest payments, the government believes that it has the luxury to hang tough in its IMF-EU negotiations.
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